Consumers spent more in March, showing American households are absorbing high inflation and are positioned to propel the economy heading into the spring and summer.
Personal-consumption expenditures increased a seasonally adjusted 1.1% in March from the prior month, the Commerce Department said Friday. Adjusting for inflation, consumer spending rose 0.2% last month, driven by higher services spending. Household spending also rose at a faster rate than inflation from a year earlier.
Consumers stepped up spending on services like travel and dining, as well as on goods like gasoline and food. Spending on durable goods declined for the second month in a row, led by lower spending on vehicles.
“The consumer’s fine, they’ve got loads of money,” said
chief economist at Pantheon Macroeconomics, pointing to savings accumulated during the pandemic, and adding that “the consumer is set up for a pretty decent second quarter.”
Personal income, a measure that includes wages and government assistance, climbed 0.5% from the prior month. That was a slower rise than overall inflation, which increased 0.9% on the month in March, according to the Commerce Department. Some Americans tapped their savings to offset cost increases. The savings rate fell to 6.2% in March, the lowest in nine years.
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chief U.S. economist at Oxford Economics said she expects the pickup in consumer spending to be sustainable, “but there are obviously large headwinds facing the consumer right now,” like inflation and supply-chain disruptions as a result of lockdowns in China.
Overall inflation, as measured by the Commerce Department’s price index, rose 6.6% in March from a year earlier, an acceleration from February, but when excluding volatile food and energy costs—the Federal Reserve’s preferred gauge, annual inflation cooled slightly, rising 5.2% last month from a year earlier.
“The consumer has money. They pay down credit-card debt. Confidence isn’t high, but the fact that they have money, they’re spending their money,”
& Co. Chief Executive
said on an earnings call earlier this month. He expected that to continue in the second and third quarters, though inflation and the war in Ukraine pose challenges to the economic outlook, he said.
The consumer spending figures come amid mixed signals from the broader economy. The unemployment rate was a low 3.6% in March and workers’ wages grew, but U.S. gross domestic product contracted at a 1.4% annual rate in the first quarter of 2022.
That was largely due to a widening of the trade deficit, thanks to strong consumer demand for imports, and slower inventory stocking by companies. Analysts expect the weakness to be short-lived: Economists surveyed by the Journal earlier this month expected a growth rate of 3% in the current second quarter.
Many U.S. consumers are rethinking their spending habits amid continued high inflation.
In the San Francisco Bay Area,
is feeling the pain of higher prices at the pump. The cost to fill up his sport-utility vehicle has jumped to $130 from about $70 in 2018.
“As prices really start to skyrocket, I’m looking more closely and focused on things I need in the immediate here and now,” said Mr. Williamson, who took early retirement as general counsel at a medical technology company.
Grocery prices have also risen steeply, he said. “I’m not buying filet mignons and bottles of fine wine at this point,” the 51-year-old said. He is planning to “travel locally, do day excursions from home, a staycation,” and forgo travel abroad this summer as a result of rising transportation costs and onerous Covid-19 testing requirements.
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